Questions and Answers of Macroeconomy

What market failure does Bill Gates (World View, p. 454)cite as the motivation for global philanthropy? LO3
If economic growth reduced poverty but widened inequalities, would it still be desirable? LO3
How do nations expect nationalization of basic industries to foster economic growth? LO3
Why do economists put so much emphasis on entrepreneurship?How can poor nations encourage it? LO3
How might Bolivia match China’s investment rate?(See Table 21.4.) LO2
Would you invest in Cambodia or Kenya on the basis of the information in Figure 21.6? LO3
Can poor nations develop without substantial increases in agricultural productivity? (See Figure 21.3.)How? LO3
How does microfinance alter prospects for economic growth? The distribution of political power? LO3
Could a nation reorder Rostow’s five stages of development and still grow? Explain. LO3
Identify “inequality traps” that might inhibit economic growth. LO3
How do unequal rights for women affect economic growth? LO3
Are property rights a perquisite for economic growth?Explain. LO3
How do more children per family either restrain or expand income-earning potential? LO3
Why are incomes so much more unequal in poor nations than in developed ones? (See World View, p. 452.) LO1
If a poor nation must choose between building an airport, some schools, or a steel plant, which one should it choose? Why? LO3
Why should Americans care about extreme poverty in Haiti, Ethiopia, or Bangladesh? LO2
What can China do with its U.S. dollar reserves? What impact will that have? LO3
Is a stronger dollar good or bad for America?Explain. LO3
In the World View on page 434, who is Farshad Shahabadi referring to as “everyone else”? LO1
Which consumers benefited from the dumping cases mentioned in the World View on page 415? LO3
Who gains and who loses from nontariff barriers to Mexican trucks (World View, p. 421)? LO3
Why did President Obama pursue “Buy American”rules if they actually hurt the economy? LO3
On the basis of News on page 423, how do U.S. furniture manufacturers feel about NAFTA? How about farmers? LO3
Why are the dimensions of the consumption and investment functions so important for policy design? LO2
What are the pros and cons of tax cuts or increased government spending as stimulative tools (News, p. 392)? LO3
Why is the multiplier higher for unemployment benefits than infrastructure spending (News, p. 392)? Which occurs faster? LO2
Should military spending be subject to macroeconomic constraints? What programs should be expanded or contracted to bring about needed changes in the budget?Is this feasible? LO2
Why did Fed Chairman Bernanke expect there would be no recession in 2008 (see News, p. 389)? Why was he wrong? LO3
Why do some nations grow and prosper while others stagnate? LO1
Is limitless growth really possible? What forces do you think will be most important in slowing or halting economic growth? LO3
Should fiscal policy encourage more consumption or more saving? Does it matter? LO2
How would a growing federal budget surplus affect the prospects for long-run economic growth? Why might a growing surplus not be desirable? LO2
Should we grant immigration rights based on potential con tributions to economic growth as Canada does? LO2
Why don’t we consume all our current output instead of sacrificing some present consumption for investment? LO1
Why do productivity gains slow down in recessions?(See Figure 17.5 .) LO1
In what specific ways (if any) does a college education increase a worker’s productivity? LO1
Why would anyone object to President Obama’s proposed infrastructure spending? LO2
How might the inflationary flashpoint affect policy decisions? How would you represent the flashpoint on the Phillips curve? LO2
How would the volume and timing of capital investments be affected by ( a ) a permanent cut in the capital-gains tax, and ( b ) a temporary 10-percent tax credit? LO3
How do each of the following infrastructure items affect aggregate supply? ( a ) highways, ( b ) schools, ( c ) sewage systems, and ( d ) courts and prisons. LO3
If all workplace-safety regulations both ( a ) improve workers’ well-being and ( b ) raise production costs, how should the line between “good” regulations and “bad”regulations be drawn? LO3
OSHA predicted that its proposed ergonomics rules(text, p. 349) would have cut repetitive-stress injuries by 50 percent. Was Congress correct in repealing those rules? LO1
How is the aggregate supply curve affected by ( a ) minimum wage laws, and ( b ) Social Security payroll taxes and retirement benefits? LO3
Why would a Gulf Coast hurricane have national impact on aggregate supply? (News, p. 342). LO1
What were the unemployment and inflation rates last year? Where would they lie on Figure 16.6 ? Can you explain the implied shift from curve PC 2 ? LO2
Does inflation targeting resolve uncertainties about Fed policy? LO1
If mortgage rates fell to 0 percent (“free money”), why might consumers still hesitate to borrow money to buy a home? LO2
Why were banks reluctant to use their lending capacity in 2008? (See News, p. 316.) What did they do with their increased reserves? LO2
In the News on p. 314, what starts the multiplier process?When will it stop? LO1
Could long-term interest rates rise when short-term rates are falling? What would cause such a pattern? LO3
When prices started doubling (see News, p. 323), why didn’t the Continental Congress print even more money so Washington’s army could continue to buy supplies?What brings an end to such
Can there be any inflation without an increase in the money supply? How? LO3
If bondholders expect the Fed to raise interest rates, what action might they take? How would this affect the Fed’s goal? LO3
Why did bond prices decline at the February 2009 auction?(See News, p. 298.) LO3
Why might the Fed want to decrease the money supply? LO2
Why did China raise reserve requirements in 2007? How did they expect consumers and businesses to respond?(See World View, p. 303.) LO2
What is the current price and yield of 10-year U.S. Treasury bonds? Of General Motors bonds? (Check the financial section of your daily newspaper.) What accounts for the difference? LO3
Why do banks want to maintain as little excess reserves as possible? Under what circumstances might banks want to hold excess reserves? ( Hint: See Figure 14.2 .) LO2
Why is the failure of a major bank (News, p. 286) so frightening? LO3
How does federal deposit insurance encourage greater risk-taking by banks? Could the banking system function without government deposit insurance? How? LO2
If all banks heeded Shakespeare’s admonition “Neither a borrower nor a lender be,” what would happen to the circular flow? LO2
If people never withdrew cash from banks, how much money could the banking system potentially create?Could this really happen? What might limit deposit creation in this case? LO3
How are an economy’s production possibilities affected when workers are paid in bras and coffins rather than cash? (See World View, p. 271, about bartering in Russia.) LO1
In what respects are modern forms of money superior to the colonial use of wampum as money? LO1
How long would it take to pay off the national debt?How would the economy be affected? LO3
By how much did defense spending increase in 1940 to 1944? (See back endpapers of this book.) What was crowded out? LO2
A constitutional amendment has been proposed that would require Congress to balance the budget each year. Is it possible to balance the budget each year? Is it desirable? LO1
What’s considered “too much” debt or “too large” a deficit? Are you able to provide any guidelines for deficit or debt ceilings? LO2
In what ways do future generations benefit from this generation’s deficit spending? Cite three examples. LO3
Can you forecast next year’s deficit without knowing how fast GDP will grow? LO1
When are larger deficits desirable? LO2
Who paid for the Revolutionary War? Did the deficit financing initiated by the Continental Congress pass the cost of the war on to future generations? LO3
What were the differences in size, content, and expected impact between the U.S.’s and China’s 2009 stimulus packages? (World View, p. 230; News, p. 231, and Table 11.2 .) LO2
Why do critics charge that fiscal policy has a “biggovernment bias”? LO2
How quickly should Congress act to remedy an AD excess or AD shortfall? What are the risks of quick fiscal policy responses? LO2, LO3
According to the World View on page 230, what prompted China’s fiscal stimulus in 2008? Had the government not intervened, what might have happened? LO1
Will consumers always spend the same percentage of any tax cut? Why might they spend more or less than usual? LO2
Why are the AD shortfall and AD excess larger than their respective GDP gaps? Are they ever the same size as the GDP gap? LO1
What happens to aggregate demand when transfer payments and the taxes to pay them both rise by the same amount? LO3
How did consumers spend their 2008 tax cut (News, p. 233)? Does it matter what they spend it on?Explain. LO3
Will the price level always rise when AD increases?Why or why not? LO2
What is the “ripple effect” in the News on page 211? LO2
Why might “belt-tightening” by consumers in a recession be unwelcome? (See News, p. 218.) LO3
What forces might turn an economic bust into an economic boom? What forces might put an end to the boom? LO3
Why was President Obama so concerned about the economy at the outset of his presidency? LO3
How might construction-industry job losses affect incomes in the clothing and travel industries? LO2
How can equilibrium output exceed full-employment output (as in Figure 10.9 )? LO3
When unwanted inventories pile up in retail stores, how is production affected? What are the steps in this process? LO3
How might declining prices affect a firm’s decision to borrow and invest? (See News, p. 207.) LO3
How should home builders respond when they see home prices falling? LO2
According to the World View on page 188, why did Panasonic cut investment spending in 2009? Was this a rational response? LO2
Why would an employed consumer cut spending when other workers were being laid off (see News, p. 185)? LO2
Why do rich people have a higher marginal propensity to save than poor people? LO1
Could President Obama have pursued the classical policy strategy? LO3
How did the decline in U.S. home prices in 2006–8 affect aggregate demand? LO2
How much do higher gasoline prices contribute to inflation? LO1
Could demand-pull inflation occur before an economy was producing at capacity? How? LO3
Identify two groups that benefit from deflation and two that lose. LO2
Who gained and who lost from the price changes in Table 7.2 ? LO2
Who gains and who loses from rising house prices? LO2

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